1. Regulatory Matters May / June Event - 2014

2. Regulatory Matters Agenda
Compliance Bulletin and Regulatory Analysis Update
Delivering Independent Advice
3. Regulatory Landscape
Questions
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3. Compliance Bulletin and Regulatory Analysis Updates

4. Regulatory Matters Regulatory Update
Bankhall issue three types of Compliance Communication:
Weekly Regulatory Update (RU)
‘High-level’ summary of regulatory information drawn from FCA, FOS etc
Every Monday as part of ‘Bankhall Weekly’
Monthly Compliance Bulletin
Summary of important information issued via the weekly regulatory updates within the month;
A summary of all new and amended compliance guidance published within the month.
Last Thursday of each month
Ad-hoc Regulatory Analysis
Further in depth analysis when required on key topics
Rag rated (Red, Amber, Green) to highlight issues that we feel are particularly important
In response to your feedback, we have returned to issuing a more comprehensive monthly Compliance Bulletin, via on the LAST THURSDAY of each month. These contain a round up of:
* Information relevant to investment, mortgage & GI firms;
* A summary of the important information issued via the weekly Regulatory Updates within the month;
* Further in depth Regulatory Analysis, where required, including guidance on what you need to consider and/or do differently, following regulatory changes; and
* A summary of all new and amended compliance guidance published within the month.
Information is drawn from FCA, FOS and various regulatory publications
Designed to help you identify anything that has come to light that week which may have implications on your business.
The REGULATORY UPDATE also provide information about the next steps to be taken, for example if further analysis and guidance will follow within a Compliance Bulletin, it will say so.
The REGULATORY UPDATE also provide a summary of all new and amended compliance guidance published within the previous week, including the reasons for the change; and any other information we think you need to know.
It’s a general WEEKLY NEWSLETTER
IT IS WORTH NOTING AT THIS POINT THAT ALL ARTICLES PUBLISHED ARE RAG RATED – [RED, AMBER AND GREEN] TO HIGHLIGHT THE ISSUES THAT WE FEEL ARE PARTICULARLY IMPORTANT OR REQUIRE ATTENTION
Finally a REGULATORY ANALYSIS is issued on an ad hoc basis whenever
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5. Regulatory Matters Regulatory Update
Mortgage Market Review
Implementation date 26th April 2014
Key changes:
Affordability now responsibility of lenders – know their criteria!
‘Key message’ disclosures – new IDD?
Introduction of ‘customer groups’ – update new business log
Adding fees to loans – ‘positive consent declaration’
Interest only mortgages – credible repayment strategy
Dedicated suite of templates within Bankhall website
On site compliance support available if required
AMI / CML / IML joint guide published
New FCA consumer guide
CB 21/14 provides round up
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6. RA30/14 contains more detail in regard to the Final Rules
Regulatory Matters Regulatory Update
Consumer Credit Regulation
1st April - Consumer credit regulation transferred from the OFT to the FCA.
Interim permission required to continue consumer credit activities
Interim permission will continue until application for full authorisation
Firms with interim permission must apply for full FCA authorisation or a VoP within their own specific application period.
FCA will contact from 1 May 2014 with details of their own specific application period.
FCA indicated that an ‘authorisation pack’ will be made available to firms before they need to apply for full authorisation.
RA30/14 contains more detail in regard to the Final Rules
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7. Regulatory Matters Regulatory Update
Post Budget Pension Reforms
19 March Chancellor announced substantial changes to pension legislation in the Budget.
Some changes came into effect on 27 March 2014
Further changes are in consultation and are proposed to be introduced in April
FCA has issued a Final Guidance paper, setting out its expectations of firms during this interim period to April 2015.
All firms should read this paper to ensure fair outcomes for those clients that have recently purchased an annuity, or are approaching retirement in the next year.
FCA believes that some customers may be put at a disadvantage if they do not know about the Budget changes and cannot make an informed decision
All firms should review and revise their existing practices in light of this guidance
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8. Regulatory Matters Regulatory Update
Post Budget Pension Reforms
Key issues to note:
Many firms are already making changes to their processes and procedures and are highlighting the changes at Budget to their customers.
Providers and advisers should check that any recent purchases are still in the best interests of their customers, with providers advised to offer extended guarantee and cancellation periods
Ensure that clients understand the consequences of delaying buying an annuity purchase, stating that advisers should inform clients that the offered rate may drop if they wait until April 2015.
Firms should highlight to clients any guaranteed annuity rate they may be entitled to, and that not buying an annuity during the coming year may mean this is forfeited.
CU 14th April 2014
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9. Regulatory Matters Regulatory Update
Financial Incentives Update
FCA published Final Guidance on Financial Incentives January 2103
Results of thematic review undertaken now published (March 2014)
Key points: -
Significant progress made but not across the board
Some firms still need to ‘get better control’ of their incentive schemes
Cultural change required
Review internally – Schemes, Monitoring, MI, Risks
FCA Supervision 2014
Financial Incentives Tool within Bankhall website
CB 21/14 & 23/14 provides further detail
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10. CB 23/14 and RA 31/4 for further details
Regulatory Matters Regulatory Update
FCA Consulting on changes to GABRIEL
FCA consultation paper published (CP14/5) setting out proposals for changes to regulatory reporting requirements
Key changes proposed:
Clarification on labels used to make the data collection form easier to complete
Section K (Adviser Charging) to be an annual rather than six monthly return for investment firms
Section L (Consultancy Charging) to be removed
Annual questionnaire for APF’s to move into GABRIEL and reduce content by around 75%
Policy Statement expected late 2014
CB 23/14 and RA 31/4 for further details
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11. Delivering Independent Advice

12. Regulatory Matters Delivering Independent Advice
FCA Thematic Review Findings – Delivering Independent Advice
FCA Post RDR activities:
Three stage thematic review
First stage of thematic review – July 2013
FCA acknowledged progress
Highlighted areas for improvement
FCA published findings of second stage thematic review – focused on 2 key areas:
Where firm describe themselves as independent – is this happening in practice?
Does the disclosure information provided to customers meet with regulatory
requirements?
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13. Regulatory Matters Delivering Independent Advice
FCA Thematic Review – Delivering Independent Advice
FCA - Second stage of thematic review findings:
113 firms included within review:
88 firms stated that they offered independent advice
30 either unclear or failed to offer independence
Further investigation undertaken
73% failed to provide correctly provide the required information on the cost of advice to consumers
Significant failings in providing cost of advice
Lack of clarity in up front documentation
Failure to document in monetary terms
No indication that costs would fluctuate
Third cycle of thematic reviews in Q – FCA regulatory enforcement action ….
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14. Regulatory Matters Delivering Independent Advice
‘Independent advice’ is defined in the FCA handbook (COBS 6.2A.3R) as follows:
‘A firm must not hold itself out to a retail client as acting independently unless the only personal recommendations in relation to retail investment products it offers to that retail client are:
Based on a comprehensive and fair analysis of the relevant market; and
Unbiased and unrestricted ‘
Meeting FCA Independent standards
Comprehensive review across the market
NOT every product in the market has to be reviewed comprehensively
Consider all investment solutions in market place
Do not require detailed due diligence on every product
FCA require you to ….
Carry out research on WOM to identify solutions – customer best interests
Conduct detailed due diligence on the solutions recommended
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15. Regulatory Matters ‘Packaged Products v Retail Investment Products’
Key independence requirements:
The range of products that advisers must be willing and able to advise on has widened from ‘packaged products’ to a defined category of ‘retail investment products’ (RIPs) sold to retail clients.
Retail Investment Products
A life policy;
A unit;
A stakeholder pension scheme (including a group stakeholder pension scheme);
A personal pension scheme (including a group personal pension scheme);
An interest in an investment trust savings scheme;
A security in an investment trust;
A structured capital-at-risk product; or
Any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset.
Packaged Product
A life policy;
A unit in a regulated CIS;
A stakeholder pension scheme (including a group stakeholder pension scheme);
A personal pension scheme (including a group personal pension scheme); or
An interest in an investment trust savings scheme.
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16. Regulatory Matters
Main additions to RIP list - types of investments that are not RIPs
Main additions
Exchange traded funds (although most are currently ‘packaged products’)
Structured Products (not deposit based)
Unregulated Collective Investment Schemes
All investments in Investment Trusts (this will also cover VCTs)
Types of investments that are not RIPs
Direct shares
Structured deposits
Gilts
Corporate bond
National savings certificates
Deposit accounts
Cash ISAs
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17. Regulatory Matters Why is the RIP definition important?
In order to be independent, all personal recommendations to retail clients (in relation to retail investment products) must be:
Based on a comprehensive and fair analysis of the relevant market; and
Unbiased and unrestricted
You must be consider all products that falls within the Retail Investment Product definition.
Some non RIP products must also be considered for general suitability
Except - Group Pension business
Able to limit advice to employees on joining a group pension scheme (fund choice / contribution levels etc.) without compromising independence.
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18. Non-product independence - DFM
Regulatory Matters
Non-product independence - DFM
The fact that a discretionary management service itself selects investments based on a comprehensive and fair analysis of the market does not mean that a decision to use a single discretionary manager for all your recommendations will meet the independence standard.
See ‘Using discretionary management services’ guide for more information
“If a firm is providing independent advice it should consider a wide range of investment solutions in the market before recommending a client uses a discretionary management service. Recommending a discretionary management service should not be used as a default solution”. FSA
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19. Regulatory Matters Non-product independence - platforms
See ‘Getting started with platforms’ guide for more information
“We think that it is likely to be very rare, if possible at all, that a firm could use one platform for all clients and meet the independence rule. A firm that wished to do so would have to find a platform that offered a range of products that covered the whole of the packaged product market (or the whole of a sector of that market). Furthermore, it would need to keep this range under continual review to ensure that it remained whole of market”.
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20. Regulatory Matters Considering non-RIPs
Non-RIPs must also be considered in order to satisfy ‘suitability’ requirements
Some products / advice require additional qualifications / additional permissions:
Equity Release
Pension Transfer
Long Term Care
Securities
You are able to exclude providing advice in these areas and/or refer clients elsewhere without compromising your independence
If you identify a client needs advice in one or more of these areas, you must refer them to a specialist who can help.
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21. Regulatory Matters Referrals to other advisers
In order for an investment firm to hold itself out as being ‘independent’, all investment advisers within that firm must be able to provide independent advice.
‘Full’ client introductions still permitted
Not possible to refer clients for specific pieces of RIP business whilst retaining the client for other types of investment business.
Able to ‘seek input’ from 3rd party to assist with a recommendation
Able to refer advice requiring additional qualifications (equity release, long term care & pension transfer)
Able to refer non-DI business
‘Guide to referring investment business in a post RDR environment’    Link to Doc 326
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22. Regulatory Matters Non-mainstream pooled investments (NMPI)
The FCA identified that a number of firms mistakenly believe that non-mainstream pooled investments (NMPIs), including unregulated collective investment schemes (UCIS), are not in scope of the RDR. NMPI should be considered, where appropriate in order to satisfy definition of independence & suitability.
Complex
High risk
Illiquid
Difficult to value
Less regulated
Use ‘new’ investment strategies
“We expect UCIS to be suitable for very few retail clients. A firm’s independent status will not be impacted if they never sell these products because they deem them to be unsuitable for their clients…From the perspective of independent advice, the key point is that considering a product is clearly not the same as recommending a product.”
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23. Regulatory Matters Rules – January 2014
PS13/3 sets out the rules in relation to non-mainstream pooled investments (NMPI)
How this affects Bankhall firms:
Firms promoting products now classified as NMPIs to ‘retail’ customers; and
Discretionary portfolio managers, who may include NMPIs in portfolios.
Products affected by the ban:
UCIS (or units within a UCIS);
Traded Life Settlements; and
Securities issued by special purpose vehicles pooling investment in assets, other than listed or unlisted shares or bonds.
New rules do not affect the marketing of NMPIs to sophisticated / high-net worth investors, or indeed to professional clients.
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24. Regulatory Matters Rules – January 2014
A number of products will fall out of scope of the marketing ban:
Exchange Traded Products;
Real Estate Investment Trusts;
Venture Capital Trusts; and
Overseas Investment Companies which meet the criteria for investment trust status if based in the UK and EISs and seed EISs, unless structured as UCIS.
The marketing of special purpose vehicles pooling investment primarily in shares and bonds is also not restricted.
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25. Regulatory Matters FCA’s decision tree
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26. Don’t forget ……..You can also use it to create own firm panel
Regulatory Matters
Demonstrating Independence & Suitability
FCA Thematic ‘independence’ Reviews
Bankhall has identified 66 main product types – which should you consider?
Bankhall has created a ‘Product Selection Tool’:
RIP / non-RIP categorisation
Product description
‘Suitability’ category – core, non-core & specialist
Suitability comments
Additional qualification requirements
Additional permissions requirements
Inclusion / exclusion from SBG Research’s panel
Don’t forget ……..You can also use it to create own firm panel
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27. Regulatory Matters Using the Product Selection Tool
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28. Refer to FCA’s ‘decision tree’ for specific restrictions
Regulatory Matters
Product Selection Tool
Suitability classification:
Core – Products that are potentially suitable for all retail clients e.g. Investment Bond, Unit Trust, Personal Pension.
Non-Core – Products that are not ‘non mainstream pooled investments’, but are very unlikely to be suitable for retail clients e.g. VCT, Film Partnership, EIS, Share.
Specialist – Non mainstream pooled investments – can only be promoted to non-retail clients (e.g. Professional clients) or specialist types of retail clients (HNW, Sophisticated Investors). Examples of such products are UCIS, Traded Life Policy Investment, Special Purpose Vehicle.
Refer to FCA’s ‘decision tree’ for specific restrictions
Please note - Categories not always clear cut – sometimes depends on product structure
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29. Regulatory Matters Non-core & specialist product suitability
Product Selection Tool
Non-core & specialist product suitability
Client eligibility:
High level of investment sophistication – more than just investment experience
Very wealthy – more than £250k assets? (excluding main residence, chattels)
If investing for non-pension need, exclude pension funds?
If investing for pension need, exclude other investments?
Very high appetite for risk & capacity for loss
See: ‘Guide to assessing the suitability of non-core & specialist investments’
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30. See: ‘Guide to Independence in a post-RDR environment’
Regulatory Matters
Use of ‘Independent’ Panels
The rules permit the use of ‘panels’ by firms (without this affecting the firm’s independence) so long as:
The panel is based on a fair and comprehensive analysis of the relevant market;
The panel is regularly reviewed;
If appropriate, there are robust reasons for excluding certain product types or specific retail investment products; and
If a client is not best served by the products available on the panel, a process is in place to facilitate the provision of advice ‘off panel’ where appropriate.
Segmentation:
You should consider all retail investment products that are capable of meeting the investment needs and objectives of your clients.
You do not have to have non-core and specialist products on your panel if they are not suitable for any of your clients.
See: ‘Guide to Independence in a post-RDR environment’
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31. Regulatory Matters Examples of Good and Bad Practice - Use of panel
Panel created for use of majority recommendations
Panel constructed by reviewing whole of market
Contained a wide range of products and providers
Panel contains list of pre-approved products and providers
Adviser – ability to recommend ‘off panel’ solutions with clear instructions
Firms conduct pre-sale checks and subject to research and due diligence checks.
A panel of products constructed by firms who felt would meet ‘most’ client needs
If adviser struggling to find a suitable product for customer – ‘would consider’ allowing to go off panel
No process or guidance to help with this
Firm may not be able to offer an appropriate investment solution to all customers
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32. Regulatory Matters Key points when using panels
Reminder….. when using panels
Design of panel(s)
Use whole of market as a starting point
Systems and controls
Do you have robust systems and controls to manage this process?
How often will you review the panel?
How will you communicate this to your advisers?
How will you monitor and manage your advisers to ensure that they consider ‘off panel’ solutions in order to meet the best interest of a customer?
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33. Regulatory Matters
Examples of Good and Bad Practice - Use of one platform – majority of customers
Firm mainly dealt with a defined category of client - remained mindful of products available across market
If customer has particular needs and objectives – adviser able to recommend a product ‘off-platform’ as in best interests
Example: platform based SIPP did not offer individual property purchase (other SIPPs in platform not competitive) adviser able to recommend another SIPP inline with needs and objectives
Firms used a single platform but did not consider the customers that the platform only services would be appropriate for
Used platform for all customers regardless of needs and objectives
Could lead to unsuitable advice for some customers
Example: platform has a flat fee, customers investment level low therefore the flat fee has a disproportionate impact on the overall costs
Firm should have considered customers best interests
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34. Regulatory Matters Key points when considering use of platforms
Reminder….. when considering using platforms
Have you undertaken appropriate research to support your choice?
Can you evidence this?
How often will you review the platform?
What due diligence did you undertake? Have you revisited this recently?
Does your due diligence take into account:
RIPs without any bias
Remuneration for platform provider
Have you considered which platforms are appropriate for your customers and that some customers may need to go off-platform?
Do you understand any limitations of the platforms you have selected?
What processes do you have in place to support advisers with ‘off-platform’ solutions?
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35. Regulatory Matters
Bankhall Support
Comprehensive suite of guidance documents covering this topic:
Bankhall Online > Compliance & Technical > Compliance Manual > Document Library:
Using discretionary management services
Getting started with platforms
Guide to referring investment business in a post RDR environment
Assessing the additional suitability considerations specific to Investment Trusts
Product Selection Tool
Guide to Independence in a post-RDR environment
We can provide different types of support to you ….
bespoke support
face to face
remote basis
We can help you with product suitability, due diligence criteria, demonstrating independence
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36. Regulatory Matters CPD CPD records are important
Reminder…..
CPD records are important
Demonstrate competence in areas not regularly advised upon
NMPI
Include in adviser CPD Training Plan
Review at regular 1:1 meetings
Utilise MyLearning Tests
Utilise Bankhall TV
Assists with SPS renewal
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37. Regulatory Matters Finally a word from the regulator ……
…..putting customers at the heart of your business, keeping an open mind, considering all options, then independence should follow naturally …….
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38. The Regulatory Landscape

39. Regulatory Matters Regulatory Landscape
FCA Business Plan & Risk Outlook 2014 / 15
Business Plan sets out how the FCA will:
Shape its activities
Integrate new responsibilities (CCL)
Implement and improve its models and systems
Develop its people and;
Ensure that its priorities remain focused on achieving its objectives.
FCA’s Strategic objective:
To ensure that the relevant markets function well
FCA’s Operational objectives:
To secure an appropriate degree of protection for consumers
To protect and enhance the integrity of the UK financial system
To promote effective competition in the interests of consumers
Should be read alongside the FCA’s Risk Outlook for 2014/15, as this provides details of the main risks identified by the FCA.
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40. Regulatory Matters Regulatory Landscape
FCA Risk Outlook 2014 / 15
Sets out what main drivers the FCA believes will be a risk to its objectives
Provides details of the key areas which will be subject to ‘supervisory focus’ over the coming year.
Key areas identified include:
Poor culture and controls threatening market integrity
Consumer credit growth leading to unaffordable debt
Retirement income products delivering poor consumer outcomes
Platform due diligence
Bankhall Support
Retail Conduct Risk Framework and Assessment Tool
Ongoing Compliance Communications
Ref:Bankhall RA35 & 36/14
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41. Regulatory Matters ‘Hot Topics’ - 2014
Business Risk Awareness Workshops
FCA – continuing BRAW workshops and assessments
CF, LD, LL, NP, SA, SY, GL, HR, CH, CW postcodes being assessed now
BRAW Specific support available
Onsite visit or remote appointment facility
FCA thematic reviews
MMR post implementation review and testing - Autumn 2014
Press reports – FCA will review platform due diligence
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42. Questions? Regulatory Matters ‘Hot Topics’ - 2014
Don’t forget… support is available from:
Compliance Consultants
CSU
Regional Development Managers
Bankhall Online
Questions?
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43. Handset questions

44. Handset Questions
How satisfied are you with the information you have received during this afternoon’s event ?
Very satisfied
Satisfied OK
Unsatisfied
Very unsatisfied
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45. Handset Questions
that all regulated firms should be familiar with the main requirements of this Business the three cornerstones of Governance, Control and Culture; therefore the requirements of BRAW in general should not be a new concept. However, this level of contact with the regulator can be quite daunting for a small firm facility. These services are designed to provide our clients with focus, direction and peace of mind in the run up to BRAW and the following regulatory review
2. How likely are you to attend future sessions similar to this afternoon’s event?
Very likely
Likely
Don’t know
Unlikely
Very unlikely
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46. Thank you and questions